A New Way to Look at Your Competitors

Steve Blank is a retired Silicon Valley serial entrepreneur turned educator who developed the Customer Development methodology that changes the way startups are built. His book The Four Steps to the Epiphany launched the Lean Startup movement.

Every start-up I see invariably puts up a competitive analysis slide that plots performance on a X/Y graph with their company in the top right.

The slide is a holdover from when existing companies launched products into crowded markets. Most of the time this graph is inappropriate for start-ups or existing companies creating new markets.

Here's what you need to do instead:

The X/Y axis competitive analysis slide is a used by existing companies who plan to enter into an existing market. In this case the basis of competition on the X/Y axes are metrics defined by the users in the existing market.

This slide typically shows some price/performance advantage. And in the days of battles for existing markets that may have sufficed.

But today most start-ups are trying to re-segment existing markets or create new markets. How do you diagram that? What if the basis of competition in market creation is really the intersection of multiple existing markets? Or what if the markets may not exist and you are creating one?

We need a different way to represent the competitive landscape when you are creating a business that never existed or taking share away from incumbents by re-segmenting an existing market. Here's how:

The Petal Diagram

"¨I've always thought of my start-ups as the center of the universe. So, I would begin by putting my company in the center of the slide like this:

In this example the start-up is creating a new category--lifelong learning network for entrepreneurs. To indicate where their customers for this new market would come from they drew the five adjacent market segments: corporate, higher education, start-up ecosystem, institutions, and adult learning skills that they believed their future customers were in today. So to illustrate this they drew these adjacent markets as a cloud surrounding their company. (Unlike the traditional X/Y graph you can draw as many adjacent market segments as you'd like.)

Then they filled in the market spaces with the names of the companies that are representative players in each of the adjacent markets.

Then they annotated the private companies with the amount of private capital they had raised. This lets potential investors understand that other investors were interested in the space and thought it was important enough to invest.(And plays on the "no VC wants to miss a hot space" mindset.)

Finally, you could show the current and projected market sizes of the adjacent markets which allows the start-ups to have a "how big can our new market be?" conversation with investors. (If you wanted to get fancy, you could scale the size of the "petals" relative to market size.)

The Petal Diagram drives your business model canvas.

The chart is saying, "We think our customers will come from these markets. That's handy if you're using a lean start-up methodology because the petal chart helps you identify your first potential customer segments on the business model canvas.

You use this chart to articulate your first hypotheses of what customer segments you're targeting. If your hypotheses about the potential customers turns out to be incorrect, and they aren't interested in your product, then you go back to this competitive diagram and revise it.

Lessons Learned:

• X/Y competitive graphs are appropriate in an existing market • Mapping potential competitors in new or re-segmented markets require a different view--the Petal diagram • The competitive diagram is how you develop your first hypotheses about who your customers are